NOTICES
DEPARTMENT OF COMMERCE
(C-357-005)
Certain Cold-Rolled Carbon Steel Flat-Rolled Products From Argentina; Final
Results of Countervailing Duty Administrative Review
Friday, June 21, 1991
AGENCY: International Trade Administration/Import Administration, Department
of Commerce.
ACTION: Notice of final results of countervailing duty administrative review.
SUMMARY: On January 4, 1991, the Department of Commerce published the preliminary
results of its administrative review of the countervailing duty order on certain
cold-rolled carbon steel flat-rolled products from Argentina. We have now completed
that review and determine the total bounty or grant during the period January 1, 1987
through December 31, 1987 to be 0.0001 percent ad valorem for Propulsora Siderurgica,
S.A.I.C., and 2.40 percent ad valorem for all other firms. In accordance with 19 CFR
355.7, any rate less than 0.50 percent ad valorem is de minimis.
EFFECTIVE DATE: June 21, 1991.
FOR FURTHER INFORMATION CONTACT: Lorenza Olivas or Maria MacKay, Office of
Countervailing Compliance, International Trade Administration, U.S. Department
of Commerce, Washington, DC 20230; telephone: (202) 377-2786.
SUPPLEMENTARY INFORMATION:
Background
On January 4, 199l, the Department of Commerce (the Department) published in the
Federal Register (56 FR 417) the preliminary results of its administrative review of the
countervailing duty order on certain cold-rolled carbon steel flat-rolled products
from Argentina (49 FR 18006; April 26, 1984). The Department has now completed that
administrative review in accordance with section 751 of the Tariff Act of 1930, as
amended (the Tariff Act).
Scope of Review
Imports covered by the review are shipments of Argentine cold-rolled carbon steel
flat-rolled products, whether or not corrugated or crimped, whether or not painted or
varnished, and whether or not pickled, not cut, not pressed, and not stamped to
non-rectangular shape, not coated or plated with metal; over 12 inches in width, and
0.1875 inch or more in thickness, as provided for during the review period in item
607.8320 of the Tariff Schedules of the United States Annotated (TSUSA); or over 12
inches in width and under 0.1875 inch in thickness, whether or not in coils, as provided
for during the review period in items 607.8350, 607.8355 or 607.8360 of the TSUSA.
Such merchandise is currently classifiable under the following Harmonized Tariff
Schedule (HTS) item numbers:
7209.11.00 .... 7209.12.00 .. 7209.13.00 7209.14.00
7209.21.00 .... 7209.22.00 .. 7209.23.00 7209.24.00
7209.31.00 .... 7209.32.00 .. 7209.33.00 7209.34.00
7209.41.00 .... 7209.42.00 .. 7209.43.00 7209.44.00
7209.90.00 .... 7210.70.00 .. 7211.30.50 7211.41.00
7211.49.50 .... 7211.90.00 .. 7212.40.50 ---------
The TSUSA and HTS item numbers are provided for convenience and Customs purposes.
The written description remains dispositive.
The review covers the period January 1, 1987 through December 31, 1987, and thirteen
programs: (1) Rebate upon export of indirect taxes paid (Reembolso); (2) Export
financing under OPRAC-1, Circular RF-2l; (3) Pre- financing of exports, Circular RF-153;
(4) Medium and long-term loans under Law 22.510; (5) Preferential pricing for purchases
of inputs; (6) Purchase of residue coal at preferential prices; (7) Capital and income tax
exemptions; (8) Incentives for trade (stamp tax exemption under Decree 716); (9) Equity
infusions and capitalization; (10) Capital grants; (11) Government loan guarantees; (12)
Incentives for export; and (l3) Forgiveness of debt.
Analysis of Comments Received
We gave interested parties an opportunity to comment on the preliminary results. We
received written comments from the petitioner, USX
*28528
Corporation, and from two
respondents, Propulsora Siderurgica S.A.I.C. (Propulsora) and Sociedad Mixta
Siderurgica Argentina (Somisa).
Comment 1: Petitioner argues that the Department should determine that benefits were
received by Somisa in 1987 from government equity infusions made from 1978 through
1983; the Department found Somisa unequityworthy, and the equity infusions
inconsistent with commercial considerations, in Cold-rolled Carbon Steel Flat-rolled
Products from Argentina: Final Affirmative Countervailinq Duty Determination and
Countervailinq Duty Order (49 FR 18006; April 26, 1984), hereinafter Final
Determination). Petitioner further alleges that Somisa received countervailable benefits
in 1987 from government equity infusions provided from 1984 through 1987 under
Decree 2887/78, which authorized government reimbursement of debt expenditure,
including payment of interest, commissions and other fees, in exchange for equity in
Somisa.
Department's Position
We found Somisa to be unequityworthy from 1978 through 1983 in our Final
Determination, and we have examined whether equity infusions found countervailable in
that determination provided benefits to Somisa in l987. In addition, we examined
Somisa's financial statements since 1983 and found that the Argentine Treasury continued
to provide equity infusions to the company frcm 1984 through 1987 pursuant to Decree
2887/78. The statements also show that the company posted operating losses and did not
register net profits for that period. Based on our evaluation of the financial statements, we
determine that Somisa continued to be unequityworthy from 1984 through 1987.
Consequently, equity infusions received between the period 1978 through 1987 may
confer a benefit.
Due to inflation, the nominal values of the equity infusions in Somisa have increased over
the years. In fact, Argentine companies must periodically restate the value of certain
accounts (including equity) to reflect the effects of inflation. Since we do not have the
standard index used in making these valuation adjustments, as best information available
we used the annual average austral/U.S. dollar exchange rate in the year of receipt to
obtain the dollar value of the government's equity infusions in each year since 1978.
To calculate the benefit from the equity infusions, we applied the rate of return shortfall
methodology. We measured Somisa's rate of return by dividing its net loss in 1987 by its
total equity and compared the result with an estimated average rate of return in 1987 for
U.S. firms investing in Argentina. We used this rate of return as best information
available because a national average rate of return on equity for Argentina was not
available. Our estimated figure was derived from data in the August 1990 Survey of
Business Trends published by the Department of Commerce, Economics and Statistics
Administration, Bureau of Economic Analysis. We then multiplied the rate of return
shortfall by the dollar value of all government equity infusions received from 1978
through 1987.
In those instances where the benefit calculated using the rate of return shortfall
methodology exceeded the amount we would have calculated for the review period had
we treated the equity infusion as an outright grant, we applied the grant cap. To
determine the grant cap, we used a declining balance methodology and allocated each
equity infusion over 15 years (the average useful life of steel industry assets in integrated
steel mills according to the Asset Guideline Classes of the U.S. Internal Revenue Service).
We used as the discount rate the national average corporate bond rates in the United
States as reported in the Morgan Guaranty Trust Company's World Financial Markets.
As applicable, we added the total dollar benefit from either the rate of return shortfall or
from the amount allocated to the review period as a result of applying the grant cap, and
converted the sum to australs using the 1987 average austral/U.S. dollar exchange rate.
Finally, we divided this austral benefit by the value of total sales in the review period. On
this basis, we determine the benefit to Somisa from equity infusions to be 0.65 percent ad
valorem.
Comment 2: Propulsora requests that, if the Department determines that Somisa received
a benefit in the review period from equity infusions, the Department calculate a
company-specific rate for Propulsora, in accordance with 19 CFR 355.20(d)(2), because
the two companies would show "materially different benefits."
Department's Position
We have applied a company-specific rate to Propulsora because Propulsora's benefit in
this review is de minimis which, pursuant to 19 CFR 355.22(d)(2), is significantly
different.
Comment 3: Petitioner claims that Decree 1554/86 allows the temporary admission of
certain products used in the manufacture of cold-rolled sheet and strip to be imported
into Argentina for industrial processing and eventual export without payment of import
duties and certain taxes. Since the 1986 tax incidence study for the reembolso is
premised on the assumption that imported materials consumed in the production of
cold-rolled sheet are subject to the payment of these taxes and import duties, exporters
of this product effectively receive a double rebate: the exemption of these duties and
taxes and the receipt of the full 10 percent reembolso. While the Department verified the
payment of these taxes and duties on 1986 imports, it did not verify their payment on
1987 imports. Consequently, the only allowable indirect taxes in this review are those
paid at the final stage, since the validity of the 1986 study cannot be accepted for 1987
with respect to the incidence of indirect taxes at prior stages.
Propulsora and Somisa dispute petitioner's contention that the Temporary Admission
program provided for in Decree 1554/86 renders the 1986 tax incidence study invalid.
Although the Temporary Admission program gives an exporter the option of importing
raw material or inputs without the payment of any import duties or certain taxes, use of
the program effectively lowers the amount of the rebate under the reembolso program,
since the base on which the reembolso is paid is reduced by the value of the imported raw
material or input.
Propulsora further contends that petitioner's allegation is based on the premise that
exporters actually used the temporary admission program during the review period. In
fact, Propulsora, like many other exporters, preferred to pay the duties on its imported
raw materials rather than use the Temporary Admission program, so that it would be
entitled to the full reembolso amount.
Finally, respondents dismiss petitioner's contention that the reembolso study had
become invalid by arguing that, in fact, there was no change in the tax structure.
Furthermore, the Government of Argentina periodically requires the submission of new
studies whenever there are material changes in the tax structure which would affect the
reembolso; it should not be expected to do so every time there is a change in the tax
rates. The Department requires only that the government reexamine its rebate schedules
periodically. The Department thoroughly examined the 1986 tax incidence study and
determined that it
*28529
provided a reasonable basis for the reembolso rate during
1987. Moreover, the Department's examination of 1987 company documents further
supported the validity of the study.
Department's Position
We disagree with the petitioner. The argument that changes in Argentine law allowing the
exemption of import duties and taxes invalidated the 1986 tax incidence study with
respect to exports for 1987 has no merit, since the Temporary Admission program does
not affect the tax incidence for reembolso purposes. Article 1 of Decree 1555/86 limits
the reembolso program to a rebate of internal taxes and "taxes for the previous import for
use or consumption" of an input; Article 3 of Decree 1554/86 clarifies that imports
entering under the Temporary Admission program are not imports for consumption.
Therefore, if no import duties are paid, they cannot be rebated. As Propulsora points out,
this is implemented in the calculation of the reembolso rebate: the base on which the
rebate is calculated is reduced by the value of any product imported under the
Temporary Admission program. Therefore, we determine that the 1986 tax incidence
study is valid for the purposes of assessing whether the reembolso rates applied in 1987
reasonably reflect the amount of actual duties and indirect taxes paid on the subject
merchandise.
Comment 4: Propulsora argues that the Department must take into account the total cost
of all RF-21 loans to determine whether the use of the program as a whole conferred a
benefit. Because the exporter does not discount individual letters of credit and negotiate
the terms of each loan individually to obtain RF-21 financing, the Department cannot
accurately analyze the benefit conferred by the program on a loan-by-loan basis. Rather,
the exporter negotiates a line of credit to discount the receivables based on projected
sales. The fact that there may be a mix of receivables (and, therefore, individual loans) is
irrelevant from the exporter's perspective. Furthermore, the exporter can only judge the
effect of its financial decision by reviewing the totality of its financing over the relevant
period.
Department's Position
We disagree. RF-21 financing is based on the discounting of foreign bills of exchange on an
export sale-specific basis. Therefore, we look at each loan independently to determine if a
countervailable benefit was conferred.
Comment 5: Propulsora and Somisa argue that the Department's failure to consider all
costs incurred on repayment of the RF-21 and RF-153 loans distorts the analysis and
creates artificial subsidies. The Department incorrectly disregarded the dollar-indexed
principal repayments (and, therefore, the devaluation expense) on loans where some
interest payments were made in 1987 but all principal repayments were made in 1988.
Respondents contend that the preferentiality of these dollar-indexed loans can only be
determined by examining the costs incurred over the entire life of the loan. If the
Department examines the entire loan and determines that it is not preferential, the
Department should then determine that there is no countervailable benefit during the
review period. If the analysis of the entire loan reveals a benefit, the Department should
countervail any benefit received on those interest payments made during the review
period according to its standard cash- flow approach.
Department's Position
Loans provided under RF-21 and RF-153 are short-term fixed-rate dollar-indexed loans
granted in australs at annual interest rates of l to 3.50 percent. Interest payments on
RF-21 loans are due in June and December of each year, and principal payments are made
in two equal installments every six months. Interest payments on RF-153 loans are due
each calendar quarter with the principal due at maturity. Since the principal payable in
australs is equivalent to the U.S. dollar value of the principal disbursed in australs, the
repayment of the principal included significant devaluation costs, given the depreciation
of the austral vis-a-vis the U.S. dollar during l987-88. The cost of these loans, therefore,
consisted of relatively low interest payments made during the life of the loan with the
major cost incurred at maturity when the principal was repaid.
The commercial loan we used for our benchmark is a 30-day, rolled-over loan, which was
the predominant alternative form of trade financing in Argentina during the review
period. Interest rates ranged from 6.4 to 14.3 percent per month during the review
period. Because interest payments were due every 30 days, the cost of the commercial
benchmark loan was relatively even throughout the life of the loan.
A comparison between the program loans and the commercial benchmark loans shows a
difference in the cash-flow effect due to the timing of interest payments and the
repayment of principal. As long as the full term of the loan fell within the review period,
the difference in the timing of the payments created no problem for the calculation of the
benefit. However, in those instances where the final interest payments and principal
repayments on the RF- 21 and RF-153 loans fell outside the review period, our cash-flow
methodology, when applied only to the payments made during the review period,
potentially overstates the benefit of these loans.
In order to determine whether the benefit was overstated in our preliminary results, we
calculated the total cost of each program loan, including interest and devaluation, and the
total cost of the commercial benchmark loan. To do so, we had to extend our analysis
beyond the review period. The program loans extended to May 1988. To ensure
comparability between program loans and benchmark loans in terms of maturity and
prevailing interest rates, we constructed four annual benchmarks, each beginning in a
different quarter of the review period. We then calculated the benefit on the basis of the
appropriate benchmark rate applicable to the quarter in which the program loan
originated. If the total cost of the program loan exceeded the total cost of the commercial
loan, we determined that there was no benefit during the review period. For the
remaining loans, we used our cash-flow methodology to calculate the cost differential
between the program loans and the loans at the benchmark rate up to the end of the
review period. However, if the differential during the review period exceeded the benefit
calculated over the life of the preferential loan, we capped the benefit for the review
period at the latter amount. On this basis, we determine the bounty or grant from RF-21
financing to be 0.0001 percent ad valorem for Propulsora and from RF-153 financing to
be 1.75 percent ad valorem for Somisa.
Comment 6: Petitioner contends that in determining the benefit from export financing
under RF-21 and RF-153 loans, the Department should use the average interest rates for
the months in which loans were outstanding rather than for the whole twelve-month
review period. This would be consistent with the use of semi-annual benchmarks in Final
Affirmative Countervailing Duty Determinations and Countervailing Duty Orders;
Certain Welded Carbon Steel Pipe and Tube Products From Argentina (53 FR 376l9;
September 27, 1988).
*28530
Propulsora does not object to the use of semi-annual
average monthly interest rates. Somisa, on the other hand, agrees with the Department's
use of an annual average rate.
Department's Position
We agree that a single average benchmark for the twelve-month review period is not
appropriate. As we point out in Department's Position to Comment 5, we have used four
annual benchmarks to more accurately determine whether, and to what extent, benefits
were received from RF-21 and RF-153 loans during the review period.
Final Results of Review
After reviewing all of the comments received, we determine the total bounty or grant to
be 0.0001 percent ad valorem for Propulsora and 2.40 percent ad valorem for all other
firms for the period January 1, 1987 through December 31, 1987. In accordance with 19
CFR 355.7, any rate less than 0.50 percent ad valorem is de minimis.
The Department will instruct the Customs Service to liquidate, without regard to
countervailing duties, all shipments of the subject merchandise from Propulsora and
to assess countervailing duties of 2.40 percent of the f.o.b. invoice price on shipments
of this merchandise from all other firms exported on or after January 21, 1987 and on or
before December 31, 1987.
Further, as provided by for section 751(a)(1) of the Tariff Act, the Department will
instruct the Customs Service to waive the cash deposit of estimated countervailing
duties on all shipments of the subject merchandise from Propulsora and to collect a cash
deposit of estimated countervailing duties of 2.40 percent of the f.o.b. invoice price
on all shipments of this merchandise from all other firms entered, or withdrawn from
warehouse, for consumption on or after the date of publication of this notice. This deposit
requirement shall remain in effect until publication of the final results of the next
administrative review.
This administrative review and notice are in accordance with section 75l(a)(1) of the
Tariff Act (19 U.S.C. l675(a)(1)) and 19 CFR 355.22.
Dated: June 13, 1991.
Eric I. Garfinkel,
Assistant Secretary for Import Administration.
[FR Doc. 91-14851 Filed 6-20-91; 8:45 am]
BILLING CODE 3510-DS-M